Reserve Bank governor Glenn Stevens has made a thinly veiled criticism of the level of public infrastructure spending in Australia, saying quality infrastructure is needed to give Australia the "best chance" of surviving the end of the mining investment boom without a serious downturn.
Subscribe now for unlimited access.
$0/
(min cost $0)
or signup to continue reading
The Abbott government warned this week it is planning a "boring" second budget in May as it fends off criticism of its ability to make savings without hampering economic activity.
Mr Stevens told the American Chamber of Commerce in Australia on Friday that the global economic backdrop had become less supportive for Australia in recent years, with falling terms of trade and declining mining investment having a negative effect on national income and government revenues.
Mr Stevens said Australia would likely survive the winding down of the mining investment boom without a serious downturn, but policymakers needed to do things like invest in "quality public infrastructure" to give the country the "best chance" of doing so.
"Attention needs to be given to the things that help our economy work to deliver what we need, even with a lower terms of trade," Mr Stevens warned.
Investment in quality public infrastructure, education and "skill building", strong public institutions, and "pragmatic, balanced regulatory arrangements" were some of the things Australia's policymakers ought to focus on, he said.
"These were the sorts of things that made a difference before the mining boom," Mr Stevens said, and they would help the economy through its "major transition" away from mining investment-led growth.
The Reserve Bank could only do so much to help, he said.
"We can hope to assist [that economic transition], and the Reserve Bank is doing that, and will continue to lend what support it can, within the limits of its powers and consistent with its mandate," he said.
"But we have always said we cannot hope to fine-tune this transition, however much we may wish otherwise."
After Mr Stevens' comments, economists at Citi released a report saying they now expect the RBA to cut rates two more times this year, rather than one more time, because the economy looked like it will grow more slowly than they had been expecting last year.
That means the Australian Prudential and Regulation Authority may have to "step up its supervision of lending practices," Citi warned.
"We are penciling in May and August as the likely timing but April can't be ruled out given the uncertainties," Citi chief economist Paul Brennan wrote on Friday.
The Reserve Bank's official cash rate is 2.25 per cent. If Mr Brennan's prediction comes true, the RBA will cut rates to 1.75 per cent this year.
Treasurer Joe Hockey argued this week that the Abbott government was delivering the biggest national infrastructure program in Australian history.
Mr Hockey said the government was helping to deliver the equivalent of eight new Snowy Mountain schemes over the next decade with projects such as Westconnex, upgrades to the North/South corridor in Adelaide and the Perth Freight Link.
"It's probably tailed off, at least in as a percentage of GDP," Mr Daley said.
The most senior institutional banker in Australia, Westpac Banking Corp's Rob Whitfield, told Fairfax Media this week that the federal government and Australian companies ought to take advantage of extraordinarily low interest rates to lock in cheap, long-term funding that could be used to buy productive assets such as infrastructure to drive economic growth.
With James Eyers
